Is Oregon business-friendly?

Ever since the bruising debate over Measures 66 and 67 that raised taxes on employers and high incomes, the question has hovered over this state: Is Oregon unfriendly to business?

The Oregonian

Ever since the bruising debate over Measures 66 and 67 that raised taxes on employers and high incomes, the question has hovered over this state: Is Oregon unfriendly to business?

And every month that the state's economy skids along the bottom and unemployment remains high, incomes stagnate and job growth is nonexistent, that question takes on an added urgency.

Now there's an answer: The Oregon Business Association, which includes more than 300 leading businesses, has completed a sincere and thoughtful critique of the business climate. It paints a picture of a state with considerable strengths as a place to do business, but also one with daunting public finance challenges.

First, Oregon's advantages, which have tended to get lost in the gloom of the persistent downturn and the ferocity of the debate over Measures 66 and 67. The OBA report reminds that national comparisons still rate Oregon's quality of life among the highest in the country. This state continues to be a powerful draw for highly educated, mobile 25- to 34-year-olds.

Transportation is a strength, too: the Portland/ Vancouver region is one of four international trade gateways on the West Coast. It has major freeway access and good rail service, and Portland's multimodal transportation system is world class. It's one of only 12 metro areas with both daily trans-Atlantic and trans-Pacific nonstop service.

Oregon has had more success than many people realize with new-economy businesses. Thanks to its lack of a sales tax, Oregon is the top state for e-commerce. It is home to more solar-power manufacturers than any place in North America and fourth in the nation in 2009 in adding new wind-energy capacity. It is rated as one of the top 10 places in the country to be an entrepreneur.

Those are substantial strengths, and especially now, they ought to be recognized and trumpeted here, there and everywhere. But there are also considerable challenges to doing business in Oregon — problems that recently have grown worse, not better.

With voter approval of Measures 66 and 67, Oregon's 11 percent personal income tax is now tied with Hawaii's for the highest rate in the country. Because its capital gains tax rate is linked to the income tax, Oregon's tax on investment gains is the nation's highest. This is the only place in the nation where a narrow bridge links one place with a capital gains tax at 11 percent and a neighbor (Washington) with none at all. Is it any wonder that so many business transactions occur on the other side of that bridge?

Oregon's overall business taxes remain relatively low compared to other states, but you wouldn't know that by the national reputation earned by hiking taxes on business in the midst of an economic collapse. The OBA says there is indeed a perception that Oregon has a negative attitude toward business. In a recent survey by Chief Executive Magazine, CEOs who make decisions about location and expansion ranked Oregon 38th, down 14 spots from a previous survey.

There are also deeply disturbing long-term trends affecting Oregon's work force and this state's desirability as a place to do business. Years of disinvestment in higher education have left Oregon 46th in the nation in higher ed funding. The percentage of Oregon adults with an associate degree or higher is well below the national average. And there's this: Oregon's incoming work force is less educated than its retiring work force, thanks to a higher high school dropout rate and lower college graduation rates.

Not enough Oregonians understand that the public finance problems — over-reliance on income and capital gains taxes, the lack of a large rainy day fund, the disproportionate amount of K-12 school spending that goes to high-cost benefits for employees, the disinvestment in higher ed — are the biggest challenges to Oregon's economic future.

In the end, it's not about tax credits, trade missions or being "friendly" to business. Ryan Deckert, the OBA's president, has it right: "The single greatest thing Oregon could do for business is get its house in order."